The zero line crossover.
A basic strategy is to buy when the momentum line crosses above the 100 level and sell when it crosses below.
This works best when used in conjunction with a trend-following indicator like a 50-day EMA.
Divergence and Exhaustion.
- Bullish Divergence: Price makes a new low, but Momentum makes a higher low.
- Bearish Divergence: Price makes a new high, but Momentum makes a lower high.
- Look for extreme spikes to identify market 'exhaustion' points.
- Momentum often leads price at major turning points.
Why it matters.
In physics and finance, speed changes before direction does. By tracking the velocity of price, you can see the trend weakening before the first red candle appears.
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